When Political Realities Get in the Way of Transatlantic Growth

Political realities on both sides of the Atlantic have a significant impact on economic opportunity, and policymakers must address this dynamic in order to begin the process of stimulating European economic growth, José Manuel Barroso, a former president of the European Commission and former prime minister of Portugal, said at the Atlantic Council on March 10.

“There is a possibility to do things, but that depends on the politics,” said Barroso, who also serves as a co-chair of the Atlantic Council’s EuroGrowth Initiative.

“The most important risks today are political and geopolitical,” said Barroso, “but I believe there are conditions for Europe to prosper.”

Contending that there is no “silver bullet to promote growth on both sides of the Atlantic,” Paula Dobriansky, a former undersecretary of state for global affairs and an Atlantic Council board member, acknowledged that there are “some political realities that one has to deal with on this side of the Atlantic and in Europe.” 

Europe is currently facing an economic crisis, unprecedented levels of migration caused by conflict in the Middle East, and the looming departure of the United Kingdom (UK) from the European Union (EU). “Those crises genuinely impacted the political, economic landscape of Europe,” said Dobriansky, who serves as a senior fellow with the Belfer Center for Science and International Affairs at Harvard University’s John F. Kennedy School of Government.

In addition, presidential elections in the Netherlands, France, and Germany later this year will further define the trajectory of Europe’s future, as well as avenues for economic opportunity.

“Political economy is back with a vengeance,” said Gordon Bajnai, a former prime minister of Hungary and group chief operation officer at Meridiam, a global investor and asset manager. “There are issues going beyond the simple economic factors that keeps Europe and the euro together,” he said.

Not only in Europe, but in the United States as well, “fundamental pillars have been questioned,” said Bajnai. US President Donald J. Trump has expressed a number of doubts about the benefits of a transatlantic alliance and European institutions. Admitting Trump’s skepticism is fair, Bajnai said, “that has a very strong impact on the European public opinion and European decision-makers.”

However, he said, if the EU can find answers to the questions posed by existing crises, projects for growth may find the political and popular support to move forward.

Barroso, Dobriansky, and Bajnai joined Raymond W. McDaniel, Jr., the chief executive officer of Moody’s Corporation, to discuss the prospects of economic growth in Europe and the importance of a transatlantic partnership in this endeavor. Susan Lund, a partner with McKinsey Global Institute, moderated the discussion.

The panel event was held in conjunction with the launch of an Atlantic Council report, Charting the Future Now: European Economic Growth and Its Importance to American Prosperity, produced by the EuroGrowth Initiative. The report aims to outline the importance of European growth on both sides of the Atlantic, and set forth a roadmap to achieving this aim.

McDaniel described how, from a private sector perspective, the turbulent political landscape in Europe stifles growth. “The dominant theme in the United States and Europe right now is uncertainty,” meaning “we are in a period which, unfortunately, I don’t believe we’ll be able to move forward particularly quickly,” he said.

“Financial markets don’t like uncertainty,” he said, because “uncertainty curtails demand.” As a result, in the private sector, which might otherwise be leveraged as an engine of growth, according to Dobriansky, McDaniel claimed there is “not a willingness to take the risk of business expansion.”

Dobriansky said that Europe faces the challenge of transparency and political will needed to transform its financial situation. In light of these circumstances, “there are steps that need to be taken to have a foundation to spring from,” in order to achieve economic growth, she said.

Barroso expressed a degree of optimism for the future of the European Union, claiming the cause for integrated economic growth is not lost, “unless things turn badly in France.”

With upcoming elections pitting far-right populist Marine Le Pen against the up and coming pro-Europe Emmanuel Macron, France appears to be at a crossroads. This election, in light of Brexit, could posit France as the next domino in a series of countries appearing to doubt the benefits of the EU.

Should Le Pen be elected president of France, “prepare yourselves for the worst,” cautioned Barroso, warning it would lead to an existential crisis in the EU.

However, “under pressure, Europe’s answer has always been more integration,” said Bajnai. He said that “undoing Europe… would be political and socioeconomically so painful that it would collapse Europe into civil war and unthinkable consequences.”

Until the election is decided, “there is a lack of confidence in France, and without France, nothing can happen,” said Barroso. He said that Germany, the great economic center of Europe also facing its own elections this year, will not move toward an integrated market without an understanding with France.

The discussion of France leaning away from the Union raised questions as to the impact of Brexit. However, Barroso said that Article 50, the element of the EU treaty which triggers the departure of a member state, will be invoked by British Prime Minister Theresa May. He described how, despite the prospect of the UK’s departure from the EU, the two will remain each other’s greatest economic partners. According to Barroso, it is in the respective best interests of the UK and the EU to ensure that the transition is a smooth one.

The panelists agreed it is in the best interests of not only the UK, but also of the United States, to have a strong Europe. The notion that the United States and Europe need each other for success is stronger now than at the inception of the partnership, said Bajnai.

“The other emerging forces in the world are not necessarily sharing the same fundamental values of democracy and liberal capitalism,” he said. “If that is questioned by others… all the more reason that these regions of the world should stick together.”

According to Barroso, “the first thing is trade.” While Trump has expressed doubts about the benefits of multilateral trade, he said that, even without the UK, the EU will remain the largest trading partner of the United States. The panelists agreed that, in addition to tangible economic benefits of transatlantic trade, it is one of the greatest tools to strengthen the transatlantic relationship, ensure the mutual benefits afforded by the partnership, and leverage the strength of both parties to ensure stability in a politically turbulent environment. 

Barroso said that although negotiations on the Transatlantic Trade and Investment Partnership (TTIP) have stalled, the US-EU trade agreement must be reviewed, reworked, renamed, and reintroduced.

While the task force report states that “America needs a strong Europe,” Barroso responded: “let me be blunt. Europe also needs a reliable American partner.”

“We need a United States that believes in trade… that honors its commitment to the European Union,” he insisted.

“I think it’s possible that President Trump, if he’s sincere about promoting growth in the United States… it makes sense to have trade with the European Union,” Barroso said, adding “that would be a great boost for Europe and the United States.”

Dobriansky said that “the transatlantic relationship matters greatly because we are bound by history; by common values; by our political, economic, and military considerations. It goes deep; it goes wide.” She described how economic considerations are deeply tied to security issues, a significant factor as the United States considers the benefits of European growth.

“It’s in everyone’s interest having Euro-growth and its resources grown because those resources can be invested in… the security sector,” she said. Trump has been vocal about his concerns regarding burden-sharing among NATO allies. The augmentation of economic resources in Europe is directly tied to the alleviation of security strains and could result in more equal burden-sharing, according to Dobriansky.

In a concluding address, Andrus Ansip, vice president of the European Commission, said that the many global challenges facing the United States and the EU “have begun to test old alliances and many long-accepted ways of working together.”

While it might be tempting to “go it alone,” he cautioned, “trying to sort out your own problems at the expense of others does not work.”

While the European project is in danger, it is not a lost cause, Ansip said. He said that “it is more effective to tackle the new challenges together… so we work together” among EU member states and with international partners.

Ansip emphasized the panelists’ message that European domestic politics must be dealt with in order to facilitate economic growth, and this will be most effectively achieved with the help of the United States.

“Naturally, there are differences between us,” he said, “but there is more that unites than divides the European Union and the United States.”

Rachel Ansley is an editorial assistant at the Atlantic Council. 

Image: From left: Katerina Sokou, Washington correspondent for the Greek daily Kathimerini, moderated a discussion with Moreno Bertoldi, Principal Advisor to the EU Delegation to the United States; Laura Lane, President of Global Public Affairs at UPS; and Antonio Spilimbergo, the head of the IMF’s mission to Turkey, at the Atlantic Council on April 5. The event was part of the EuroGrowth Conversation Series hosted by the Atlantic Council’s Global Business and Economics program. (Atlantic Council/Victoria Langton)